8-K/A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K/A

(Amendment No. 1)

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report: June 9, 2017

(Date of earliest event reported)

 

 

APOGEE ENTERPRISES, INC.

(Exact name of registrant as specified in its charter)

 

 

Commission File Number: 0-6365

 

Minnesota   41-0919654

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

4400 West 78th Street – Suite 520

Minneapolis, Minnesota 55435

(Address of principal executive offices, including zip code)

(952) 835-1874

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company   ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

 

 


EXPLANATORY NOTE

On June 14, 2017, Apogee Enterprises, Inc. (the “Company”) filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial 8-K”) to report, among other things, the completion of the Company’s acquisition of all of the outstanding shares of capital stock of EFCO Corporation (“EFCO”) on June 12, 2017. EFCO is a manufacturer of aluminum window, curtain wall, storefront and entrance systems for commercial constructions projects, primarily in the U.S.

The Initial 8-K omitted the financial statements of the business acquired and the pro forma condensed combined financial information, as permitted by Item 9.01(a)(4) and Item 9.01(b)(2) of Form 8-K. This amendment to the Initial 8-K (this “Amendment”) is being made solely to file the financial statements and furnish the pro forma financial information required by Item 9.01 of Form 8-K.

This Amendment should be read in conjunction with the Initial 8-K, which provides additional information relating to the EFCO acquisition. Except as set forth herein, no modifications have been made to the information contained in the Initial 8-K. Additionally, the Company has not updated any information contained therein to reflect events that have occurred since the date of the Initial 8-K. Accordingly, this Amendment should be read in conjunction with the Initial 8-K.

Item 9.01 Financial Statements and Exhibits.

(a) Financial Statements of Business Acquired.

The financial statements of EFCO required by Item 9.01(a) of Form 8-K are filed herewith as Exhibit 99.1 and are hereby incorporated herein by reference.

(b) Pro Forma Financial Information.

The pro forma condensed combined financial information required by Item 9.01(b) of Form 8-K is furnished herewith as Exhibit 99.2 and is hereby incorporated herein by reference.

(d) Exhibits.

 

Exhibit

Number

  

Description

23.1    Consent of Grant Thornton LLP*
99.1    Audited financial statements of EFCO Corporation as of and for the year ended November 26, 2016, and unaudited financial statements of EFCO Corporation for the six month periods ended May 27, 2017 and May 28, 2016. *
99.2    Unaudited pro forma condensed combined balance sheet as of June 3, 2017, and results of operations for the three months ended June 3, 2017 and the year ended March 4, 2017, of Apogee Enterprises, Inc. *

 

* Filed herewith.


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

APOGEE ENTERPRISES, INC.
By:  

/s/ James S. Porter

 

James S. Porter

Executive Vice President and Chief

Financial Officer

Date: August 21, 2017


EXHIBIT INDEX

 

Exhibit

Number

  

Description

23.1    Consent of Grant Thornton LLP*
99.1    Audited financial statements of EFCO Corporation as of and for the year ended November 26, 2016, and unaudited financial statements of EFCO Corporation for the six month periods ended May 27, 2017 and May 28, 2016. *
99.2    Unaudited pro forma condensed combined balance sheet as of June 3, 2017, and results of operations for the three months ended June 3, 2017, and the year ended March 4, 2017, of Apogee Enterprises, Inc. *

 

* Filed herewith.
EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated August 21, 2017, with respect to the financial statements of EFCO Corporation for the year ended November 26, 2016 included in the Current Report of Apogee Enterprises, Inc. on Form 8-K filed on August 21, 2017. We consent to the incorporation by reference of said report in the Registration Statements of Apogee Enterprises, Inc. on Form S-8 (File Nos. 333 - 58181, 333 - 95863, 333 - 137982, 333-160205, 333-169944, 333-175404, 333-190179, 333-197617, 333-197618, 333-207364 and 333-207369).

/s/Grant Thornton LLP

Kansas City, Missouri

August 21, 2017

EX-99.1

Exhibit 99.1

EFCO Corporation

Index to Financial Statements

Year Ended November 26, 2016

 

 

     Page(s)

Report of Certified Public Accountants

     2-3  

Financial Statements

  

Results of Operations

     4  

Balance Sheet

     5  

Statement of Shareholder Equity

     6  

Statement of Cash Flows

     7  

Notes to Financial Statements

     8-14  

 

 

1


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors

EFCO Corporation

We have audited the accompanying financial statements of EFCO Corporation (a Missouri corporation), which comprise the balance sheet as of November 26, 2016, and the related statement of operations, changes in stockholder equity, and cash flows for the year then ended, and the related notes to the financial statements.

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of EFCO Corporation as of November 26, 2016 and the results of its operations and its cash flows for

 

2


the year then ended in accordance with accounting principles generally accepted in the United States of America.

/s/Grant Thornton LLP

GRANT THORNTON LLP

Kansas City, Missouri

August 21, 2017

 

3


EFCO Corporation

Results of Operations

Year Ended November 26, 2016

 

 

 

     Year Ended

(Amounts in thousands)

       November 26, 2016    

Net sales

     $ 266,452  

Cost of sales

     199,152  
  

 

 

 

Gross profit

     67,300  

Selling, general and administrative expenses

     51,566  
  

 

 

 

Operating income

     15,734  

Other income, net

     (284
  

 

 

 

Earnings before income tax

     16,018  

Income tax

     228  
  

 

 

 

Net earnings

     $ 15,790  
  

 

 

 

The accompanying notes are an integral part of these financial statements.

 

4


EFCO Corporation

Balance Sheet

Year Ended November 26, 2016

 

 

(Amounts in thousands)

         November 26, 2016

Current Assets

  

Cash

    $ -  

Accounts receivable, net

     49,874  

Inventories

     22,090  

Other current assets

     1,377  
  

 

 

 

Total Current Assets

     73,341  
  

 

 

 

Property, plant, and equipment, net

     37,756  

Goodwill

     24,722  

Intangible assets, net

     21,626  

Other non-current assets

     1,332  
  

 

 

 

Total Assets

    $ 158,777  
  

 

 

 

Current Liabilities

  

Trade accounts payable

    $ 8,439  

Accrued and other liabilities

     16,854  

Reserve for product warranty and general liability

     6,567  

Deferred revenue

     4,754  
  

 

 

 

Total Current Liabilities

     36,614  
  

 

 

 

Reserve for product warranty and general liability

     5,600  

Deferred revenue

     6,564  

Other long-term liabilities

     531  

Shareholder’s Equity

  

Capital stock

     47  

Additional paid-in capital

     239,581  

Divisional equity transfers

     (36,102

Retained earnings

     (94,058
  

 

 

 

Total Shareholder’s Equity

     109,468  
  

 

 

 

Total Liabilities and Shareholder’s Equity

    $ 158,777  
  

 

 

 

The accompanying notes are an integral part of these financial statements.

 

5


EFCO Corporation

Statement of Shareholder Equity

Year Ended November 26, 2016

 

 

(Amounts in thousands)

   Common
Stock
   Additional
Paid-In Capital
   Divisional
Equity
Transfers
  Retained
Earnings

Balance at November 28, 2015

    $     47       $   239,581       $ (38,469    $ (100,941

Net earnings

     -        -        -       15,790  

Tax distribution declared

     -        -        -       (8,907

Divisional equity transfer

     -        -        2,367       -  
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

Balance at November 26, 2016

    $ 47       $ 239,581       $ (36,102    $ (94,058
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

6


EFCO Corporation

Statement of Cash Flows

Year Ended November 26, 2016

 

 

     Year Ended

(Amounts in thousands)

   November 26, 2016

Operating activities

  

Net income

    $ 15,790  

Depreciation and amortization

     4,321  

Other, net

     174  

Changes in operating assets and liabilities:

  

Accounts receivable, net

     (9,809

Inventories

     (4,380

Current portion of long-term liabilities

     2,644  

Accrued and other liabilities

     3,226  

Trade accounts payable

     1,565  

Deferred revenue

     3,013  

Other, net

     630  
  

 

 

 

Net cash provided by operating activities

     17,174  
  

 

 

 

Investing activities

  

Purchases of property, plant and equipment

     (10,253
  

 

 

 

Net cash used in investing activities

     (10,253
  

 

 

 

Financing activities

  

Bank overdrafts

     (381

Borrowings

     2,367  

Payments

     -    

Stockholder distributions declared

     (8,907
  

 

 

 

Net cash used in financing activities

     (6,921
  

 

 

 

Increase/(Decrease) in Cash

     -    

Cash, Beginning of Year

     -    
  

 

 

 

Cash, End of Period

    $         -    
  

 

 

 

The accompanying notes are an integral part of these financial statements.

 

7


EFCO Corporation

Notes to Financial Statements

Year Ended November 26, 2016

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

  1.

Nature of Business and Basis of Presentation.

EFCO Corporation, a Missouri corporation, (the Company or EFCO) manufactures and sells into the heavy commercial windows and doors segment under the trade name “EFCO”. The Company sells its products primarily to general contractors and glazing contractors. The financial statements include the accounts of the Company on a standalone basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates.

 

  2.

Subsequent Events

The Company evaluated subsequent events through August 21, 2017, the date these financial statements were issued. On June 12, 2017, 100 percent of the stock of the Company was acquired by Apogee Enterprises, Inc., a publicly-held U.S. manufacturer of architectural building materials, for approximately $192 million.

 

  3.

Fiscal Year

The Company maintains its accounting records on a 52-/53-week fiscal year. The Company’s fiscal year ends on the last Saturday of the calendar month of November. The year ended November 26, 2016 contained 52 weeks.

 

  4.

Fair Value Measurements

The Company carries financial instruments in its financial statements at fair value, which represents the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of trade receivables and accounts payable are a reasonable estimate of their fair value because of their short-term nature.

Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement, as follows:

 

  Level l -  Quoted market prices in active markets for identical assets or liabilities.
  Level 2 -  Inputs other than Level l inputs which are either directly or indirectly observable.
  Level 3 -  Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those which market participants would use.

The Company had no non-financial assets measured at fair value on a non-recurring basis.

 

  5.

Accounts Receivable and Returns and Allowances

Trade accounts receivable are recorded at their invoiced amounts less an allowance for estimated returns and doubtful accounts and do not bear interest. Accounts outstanding longer than their contractual payment terms are considered past due. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance, which at year ended November 26, 2016 was $0.3 million, based on historical write-off experience and reviews the allowance quarterly. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered, and

 

8


EFCO Corporation

Notes to Financial Statements

Year Ended November 26, 2016

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued

 

payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The Company determines the reserve for returns, which at year ended November 26, 2016 was $0.8 million, based on a historical rolling 12-month experience.

 

  6.

Inventories

All inventories are stated at the lower of cost, determined under the first-in, first-out (FIFO) method or market. Inventory costs are composed of material, direct labor, and overhead. Reserves have been established for excess, slow-moving, and obsolete inventories.

 

  7.

Intangible Assets and Goodwill

The primary intangible assets of the Company are trade names and customer relationships. All intangibles with finite lives are amortized and those with indefinite lives are not amortized. Intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate elements of property which is when a triggering event occurs. Intangible assets not subject to amortization are assessed for impairment at least annually or as triggering events occur. In evaluating the recoverability of intangible assets not subject to amortization, it is necessary to estimate the fair value of the intangible assets.

The following table summarizes intangible assets:

 

(Amounts in thousands)        November 26,        
     2016
          Life

Subject to amortization

     

Customer relationships

    $ 5,407        15 year  

Less: Accumulated amortization

     4,401     
  

 

 

 

  

Net intangible assets subject to amortization

     1,006     

Not subject to amortization

     

Trade names

     20,620     
  

 

 

 

  
    $ 21,626     
  

 

 

 

  

Amortization expense for fiscal 2016 was $0.4 million.

The estimated amortization expense for the next five years, assuming no change in estimated useful lives of identifiable intangible assets, is $0.3 million, $0.2 million, $0.2 million, $0.1 million and $0.2 million for fiscal 2017, 2018, 2019, 2020, and 2021, respectively.

Goodwill is assessed for impairment at least annually and as triggering events occur. In evaluating the recoverability of goodwill, it is necessary to estimate the fair value of the reporting units. In making this assessment, management relies on a number of factors, including operating results, business plans, and present-value techniques to discount anticipated future cash flows. Rates used to discount cash flows are dependent upon interest rates and the cost of capital at a given point in time. There are inherent uncertainties related to these factors and to management’s judgment in applying them to the analysis of impairment. It is possible that assumptions underlying the impairment

 

9


EFCO Corporation

Notes to Financial Statements

Year Ended November 26, 2016

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued

 

analysis will change in such a manner that an impairment in value may occur in the future. During the year ended November 26, 2016, the Company recorded no impairments related to goodwill.

The inputs used to estimate the fair value of goodwill and trade names were largely unobservable, and, accordingly, these measurements were classified in Level 3 of the fair value hierarchy. The fair value was estimated using an income approach, which is based on management’s cash flow projections of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rates used in the fair value calculations were based on a weighted average cost of capital using certain Level 1 and 2 inputs adjusted for the relevant risk associated with those assets.

 

  8.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost less accumulated depreciation and are being depreciated by the straight line method over estimated service lives as follows: land improvements - 15 years; buildings and leasehold improvements - generally 10-40 years, with leasehold improvements at the lesser of the life of the improvement or the remaining life of the lease; and machinery and equipment - generally 3-15 years. The Company capitalizes certain computer software development costs that are being amortized by the straight-line method over 5 years. For the year-ended November 26, 2016, depreciation and amortization expense was $3.9 million.

If facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the Company would measure the carrying amount of the assets against the estimated undiscounted future cash flows associated with these assets. At the time any such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, these assets would be adjusted to their fair values. During the year ended November 26, 2016, the Company did not recognize any impairments.

 

  9.

Product Warranty and General Liability

The Company has provided a reserve at the time of sale for the estimated cost of product replacement or repair as established by its product warranty policies. The Company’s estimated reserve for product warranty for fiscal 2016 is as follows:

 

(Amounts in thousands)    2016

Beginning balance

    $       5,780  

Current provisions

     8,737  

Expenditures

     (6,925
  

 

 

 

Ending balance

    $ 7,592  
  

 

 

 

In addition to the reserve for product warranty, the Company has recorded an estimated reserve for general liability of $4.6 million as of November 26, 2016, in accordance with its general liability policies. The Company accrues for expenses when payments become probable and can be reasonably estimated, plus an allowance for the cost of incurred but not reported expenses estimated using historical cost experience. The Company estimates short-term amount based on historical 12-month experience.

 

10


EFCO Corporation

Notes to Financial Statements

Year Ended November 26, 2016

 

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – Continued

 

  10.

Revenue Recognition

Under the terms of its sales agreements with customers, the Company recognizes revenue when persuasive evidence of an arrangement exists, when the risks and rewards of ownership have transferred, when the price is fixed, and when collection is reasonably assured. For jobs in which the Company is responsible for the installation, the Company recognizes transfer of ownership occurs at delivery to the job site. On some jobs the Company is required to bill the customer prior to shipment based on AIA documents, which will result in deferred revenue. This revenue is recognized based on one of the two previous methods depending on the job. The Company sells extended warranties on their products. These revenues are recognized over the life of the warranty.

 

  11.

Advertising Expenses

Advertising production costs are expensed as incurred for print media. Total advertising expenses were $0.6 million for fiscal 2016.

 

  12.

Freight Charges

Shipping and handling fees billed to the customer are included in net product sales. Shipping and handling costs were $12.8 million in fiscal 2016 and are included in manufacturing costs.

 

  13.

Research and Development

The Company expenses all research and development costs as they are incurred. Research and development costs totaled $0.1 million in fiscal 2016.

 

  14.

New Accounting Standard

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases, which provides for a comprehensive change to lease accounting. The new standard requires that a lessee recognize a lease obligation liability and a right to use asset for virtually all leases of property, plant and equipment, subsequently amortized over the lease term. The new standard is effective for public companies for fiscal years beginning after December 15, 2018 and for nonpublic companies for fiscal years beginning after December 15, 2019, with a modified retrospective transition. The adoption of this standard will result in reflecting assets and liabilities for the value of our leased property and equipment on our balance sheet and while we are still evaluating the impact of the standards to our overall financial statements, it is not expected to have a significant impact on our results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. Under the new standard, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017 for public companies and for annual reporting periods beginning after December 15, 2018 for nonpublic companies. We are in the process of fully evaluating the impact this standard will have on our financial statements. In the coming months, we will undertake a process to quantify the impact of the new accounting guidance

 

11


EFCO Corporation

Notes to Financial Statements

Year Ended November 26, 2016

 

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – Continued

 

on each of the relevant fiscal years and will provide further analysis and discussion as we progress in the evaluation process.

NOTE B - INVENTORIES

The composition of inventories is as follows:

 

(Amounts in thousands)    November 26,
     2016

Production materials

     $ 10,251  

Work in process

     4,558  

Finished goods

     7,281  
  

 

 

 

     $ 22,090  
  

 

 

 

NOTE C - PROPERTY, PLANT, AND EQUIPMENT

The composition of property, plant, and equipment is as follows:

 

(Amounts in thousands)    November 26,
     2016

Land and land improvements

     $ 3,626  

Buildings and leasehold improvements

     22,698  

Machinery and equipment

     29,422  

Capitalized software

     5,060  

Construction in progress

     4,901  
  

 

 

 

     65,707  

Less accumulated depreciation and amortization

     (27,951
  

 

 

 

     $ 37,756  
  

 

 

 

NOTE D - RELATED PARTY TRANSACTIONS

The Company has entered into agreements with Pella Corporation, which owned EFCO on November 26, 2016, to purchase certain material used in some of its products.    During fiscal 2016, the Company purchased $0.4 million of material under these agreements and had $0.1 million in inventory on November 26, 2016.

 

 

12


EFCO Corporation

Notes to Financial Statements

Year Ended November 26, 2016

 

 

 

NOTE E – ACCRUED AND OTHER LIABILITIES

The composition of accrued and other liabilities is as follows:

 

(Amounts in thousands)    November 26,
     2016

Accrued commissions

     $ 5,718  

Accrued payroll and related liabilities

     4,832  

Accrued insurance

     2,563  

Accrued profit sharing

     1,126  

Accrued property and use taxes

     871  

Other

     1,744  
  

 

 

 

     $ 16,854  
  

 

 

 

NOTE F - EMPLOYEE BONUS AND PROFIT SHARING PLANS

The Company sponsors a single 401(k) retirement plan covering substantially all employees who have satisfied plan eligibility requirements. The Company’s current provision under the Plan is generally based on qualifying operating income before profit distributions, donations, and other items as specified by the Board of Directors from time to time. The Company made contributions to the plan during for fiscal 2016 of $1.1 million.

The Company maintains a plan that allows participants to defer compensation. The deferred compensation liability was $0.5 million at November 26, 2016. The Company has investments in corporate-owned life insurance policies (COLI) of $1.2 million with the intention of utilizing them as long-term funding sources for this plan. The COLI assets are recorded at their net cash surrender values and are included in other non-current assets in the consolidated balance sheet

NOTE G - CONTINGENT LIABILITIES AND CONCENTRATIONS

Various lawsuits, claims, and proceedings have been or may be asserted against the Company. The Company accrues for legal claims and legal expenses when payments for such items become probable and can be reasonably estimated. While the amounts claimed may be substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a future period could be affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are pending will not have a materially adverse effect on the financial position, results of operations, or cash flows of the Company.

During fiscal 2016, the Company’s largest supplier constituted 34.5% of direct material purchases.

At November 26, 2016, the Company had contractual commitments to purchase raw materials in future fiscal periods. Based on contractual provisions, these commitments are currently estimated to be approximately $13.5 million due within the next two fiscal years. The Company believes these commitments do not exceed normal purchasing level required.

 

13


EFCO Corporation

Notes to Financial Statements

Year Ended November 26, 2016

 

 

NOTE H – LEASES

The Company leases facilities and equipment under operating leases expiring at various dates through fiscal 2025. These leases do not include any related party transactions. Rent expense for fiscal 2016 was $2.0 million. Following is a schedule of future minimum lease payments:

 

(Amounts in thousands)     
Year ending    Operating

November

   leases

2017

     $     1,879   

2018

     1,418   

2019

     999   

2020

     749   

2021

     267   

Thereafter

     914   
  

 

 

 

       $      6,226  
  

 

 

 

NOTE I – INCOME TAXES

Effective November 30, 1997, the Company converted to a Subchapter S Corporation. An S Corporation is generally not considered a taxable entity for federal, state, or local income tax purposes. Any taxable income or loss and certain other items are reported by the shareholders on their personal income tax returns in accordance with their equity interests. The Company continues to be responsible for the amount of state taxes assessed directly to the S Corporation. Accordingly, no provision has been made in the accompanying consolidated financial statements for federal, state, or local income taxes, except for those taxes applicable to federal built-in gains taxes, taxes applicable to states and localities which do not recognize S Corporation status, and state franchise taxes.

As of November 26, 2016, the reserve for uncertain tax positions is not significant.

 

14


EFCO Corporation

Index to the Unaudited Condensed Financial Statements

 

 

     Page(s)

Financial Statements

  

Unaudited Condensed Results of Operations

     2  

Unaudited Condensed Balance Sheets

     3  

Unaudited Condensed Statements of Cash Flows

     4  

Notes to the Unaudited Condensed Financial Statements

     5-12  

 

1


EFCO Corporation

Unaudited Condensed Results of Operations

 

 

(Amounts in thousands)    Six Months Ended
May 27, 2017
   Six Months Ended
May 28, 2016

Net sales

     $ 139,876        $ 121,931  

Cost of sales

     106,866        89,838  
  

 

 

 

  

 

 

 

Gross profit

     33,010        32,093  

Selling, general and administrative expenses

     26,937        25,301  
  

 

 

 

  

 

 

 

Operating income

     6,073        6,792  

Other expense (income), net

     80        23  
  

 

 

 

  

 

 

 

Earnings before income tax

     5,993        6,769  

Income tax

     139        97  
  

 

 

 

  

 

 

 

Net earnings

     $ 5,854        $ 6,672  
  

 

 

 

  

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

2


EFCO Corporation

Unaudited Condensed Balance Sheets

 

 

(Amounts in thousands)

   May 27, 2017   November 26, 2016

Current Assets

    

Cash

     $                  -      $ -  

Accounts receivable, net

     47,407       49,874  

Inventories

     23,165       22,090  

Other current assets

     2,673       1,377  
  

 

 

 

 

 

 

 

Total Current Assets

     73,245       73,341  
  

 

 

 

 

 

 

 

Property, plant, and equipment, net

     41,204       37,756  

Goodwill, net

     24,722       24,722  

Intangible assets, net

     21,471       21,626  

Other non-current assets

     715       1,332  
  

 

 

 

 

 

 

 

Total Assets

      $      161,357      $ 158,777  
  

 

 

 

 

 

 

 

Current Liabilities

    

Trade accounts payable

      $        13,861      $ 8,439  

Accrued and other liabilities

     15,770       16,854  

Reserve for product warranty and general liability

     6,642       6,567  

Deferred revenue

     1,824       4,754  
  

 

 

 

 

 

 

 

Total Current Liabilities

     38,097       36,614  
  

 

 

 

 

 

 

 

Reserve for product warranty and general liability

     5,902       5,600  

Deferred revenue

     7,024       6,564  

Other long-term liabilities

     592       531  

Shareholder’s Equity

    

Capital stock

     47       47  

Additional paid-in capital

     239,581       239,581  

Divisional equity transfers

     (41,682     (36,102

Retained earnings

     (88,204     (94,058
  

 

 

 

 

 

 

 

Total Shareholder’s Equity

     109,742       109,468  
  

 

 

 

 

 

 

 

Total Liabilities and Shareholder’s Equity

      $      161,357      $ 158,777  
  

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

3


EFCO Corporation

Unaudited Condensed Statements of Cash Flows

 

 

(Amounts in thousands)

   Six Months Ended
May 27, 2017
  Six Months Ended
May 28, 2016

Operating activities

    

Net income

    $ 5,854      $ 6,672  

Depreciation and amortization

     2,240       2,020  

Other, net

     13       20  

Changes in operating assets and liabilities:

    

Accounts receivable, net

     2,467       (5,403

Inventories

     (1,075     (5,290

Current portion of long-term liabilities

     (2,856     869  

Current liabilities

     2,219       7,962  

Other, net

     146       160  
  

 

 

 

 

 

 

 

Net cash provided by operating activities

     9,008       7,010  
  

 

 

 

 

 

 

 

Investing activities

    

Purchases of property, plant and equipment

     (5,546     (5,238
  

 

 

 

 

 

 

 

Net cash used in investing activities

     (5,546     (5,238
  

 

 

 

 

 

 

 

Financing activities

    

Bank overdrafts

     2,118       (433

Payments

     (5,580     (1,339
  

 

 

 

 

 

 

 

Net cash used in financing activities

     (3,462     (1,772
  

 

 

 

 

 

 

 

Increase/(Decrease) in Cash

     -           -      

Cash, Beginning of Year

     -           -      
  

 

 

 

 

 

 

 

Cash, End of Period

    $ -          $ -      
  

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

 

4


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

 

  1.

Nature of Business

EFCO Corporation, a Missouri corporation, (the Company or EFCO) manufactures and sells into the heavy commercial windows and doors segment under the trade name “EFCO”. The Company sells its products primarily to general contractors and glazing contractors. The financial statements include the accounts of the Company on a standalone basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates.

 

  2. Subsequent Events

The Company evaluated subsequent events through August 21, 2017, the date these financial statements were issued. On June 12, 2017, 100 percent of the stock of the Company was acquired by Apogee Enterprises, Inc., a publicly-held U.S. manufacturer of architectural building materials, for approximately $192 million.

 

  3.

Fiscal Year

The Company maintains its accounting records on a 52-/53-week fiscal year. The Company’s fiscal year ends on the last Saturday of the calendar month of November. The periods ended May 27, 2017 and May 28, 2016 contained 26 weeks.

 

  4.

Fair Value Measurements

The Company carries financial instruments in its financial statements at fair value, which represents the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts of trade and notes receivables and accounts payable, trade are a reasonable estimate of their fair value because of their short-term nature.

Financial assets and liabilities are classified in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement, as follows:

 

  Level l -  Quoted market prices in active markets for identical assets or liabilities.
  Level 2 -  Inputs other than Level l inputs which are either directly or indirectly observable.
  Level 3 -  Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those which market participants would use.

The Company had no non-financial assets measured at fair value on a non-recurring basis.

 

  5.

Accounts Receivable and Returns and Allowances

Trade accounts receivable are recorded at their invoiced amounts less an allowance for estimated returns and doubtful accounts and do not bear interest. Accounts outstanding longer than their contractual payment terms are considered past due. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in existing accounts receivable. The Company determines the allowance, which at period ended May 27, 2017 and year

 

 

5


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued

 

ended November 26, 2016 were $0.3 million and $0.3 million, respectively, based on historical write-off experience and reviews the allowance quarterly. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The Company determines the reserve for returns, which at period ended May 27, 2017 and year ended November 26, 2016 were $0.8 million and $0.8 million, respectively, based on a historical rolling 12-month experience.

 

  6.

Inventories

All inventories are stated at the lower of cost, determined under the first-in, first-out (FIFO) method or market. Inventory costs are composed of material, direct labor, and overhead. Reserves have been established for excess, slow-moving, and obsolete inventories.

 

  7.

Intangible Assets and Goodwill

The primary intangible assets of the Company are trade names and customer relationships. All intangibles with finite lives are amortized and those with indefinite lives are not amortized. Intangible assets that are subject to amortization are evaluated for impairment using a process similar to that used to evaluate elements of property which is when a triggering event occurs. Intangible assets not subject to amortization are assessed for impairment at least annually or as triggering events occur. In evaluating the recoverability of intangible assets not subject to amortization, it is necessary to estimate the fair value of the intangible assets.

The following table summarizes intangible assets:

 

(Amounts in thousands)    May 27,
2017
     November 26,
2016
 
            Life             Life  

Subject to amortization

           

Customer relationships

    $ 5,407        15 year       $ 5,407        15 year  

Less: Accumulated amortization

     4,556           4,401     
  

 

 

       

 

 

    

Net intangible assets subject to amortization

     851           1,006     

Not subject to amortization

           

Trade names

     20,620           20,620     
  

 

 

       

 

 

    
    $     21,471          $     21,626     
  

 

 

       

 

 

    

Amortization expense for periods ended May 27, 2017 and May 28, 2016 were $0.2 million and $0.2 million, respectively.

The estimated amortization expense for the next five years, assuming no change in estimated useful lives of identifiable intangible assets, is $0.3 million, $0.2 million, $0.2 million, $0.1 million and $0.2 million for fiscal 2017, 2018, 2019, 2020, and 2021, respectively.

 

6


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - Continued

 

Goodwill is assessed for impairment at least annually and as triggering events occur. In evaluating the recoverability of goodwill, it is necessary to estimate the fair value of the reporting units. In making this assessment, management

relies on a number of factors, including operating results, business plans, and present-value techniques to discount anticipated future cash flows. Rates used to discount cash flows are dependent upon interest rates and the cost of capital at a given point in time. There are inherent uncertainties related to these factors and to management’s judgment in applying them to the analysis of impairment. It is possible that assumptions underlying the impairment analysis will change in such a manner that an impairment in value may occur in the future. During the periods ended May 27, 2017 and May 28, 2016, the Company recorded no impairments related to goodwill.

The inputs used to estimate the fair value of goodwill and trade names were largely unobservable, and, accordingly, these measurements were classified in Level 3 of the fair value hierarchy. The fair value was estimated using an income approach, which is based on management’s cash flow projections of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rates used in the fair value calculations were based on a weighted average cost of capital using certain Level 1 and 2 inputs adjusted for the relevant risk associated with those assets.

 

  8.

Property, Plant, and Equipment

Property, plant, and equipment are carried at cost less accumulated depreciation and are being depreciated by the straight line method over estimated service lives as follows: land improvements - 15 years; buildings and leasehold improvements - generally 10-40 years, with leasehold improvements at the lesser of the life of the improvement or the remaining life of the lease; and machinery and equipment - generally 3-15 years. The Company capitalizes certain computer software development costs that are being amortized by the straight-line method over 5 years. For the periods ended May 27, 2017 and May 28, 2016, depreciation and amortization expense was $2.2 million and $2.0 million, respectively.

If facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the Company would measure the carrying amount of the assets against the estimated undiscounted future cash flows associated with these assets. At the time any such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, these assets would be adjusted to their fair values. During the periods ended May 27, 2017 and May 28, 2016, the Company did not recognize any impairments.

 

  9.

Product Warranty and General Liability

The Company has provided a reserve at the time of sale for the estimated cost of product replacement or repair as established by its product warranty policies. The Company’s estimated reserves for product warranty for period ended May 27, 2017 and year ended November 26, 2016, are as follows:

 

7


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – Continued

 

(Amounts in thousands)    2017      2016  

Beginning balance

     $     7,592         $     5,780   

Current provisions

     4,387         8,737   

Expenditures

     (4,267)        (6,925)  
  

 

 

    

 

 

 

Ending balance

     $     7,712         $     7,592   
  

 

 

    

 

 

 

In addition to the reserve for product warranty, the Company has recorded an estimated reserve for general liability of $4.8 million on May 27, 2017, and $4.6 million as of November 26, 2016, in accordance with its general liability policies. The Company accrues for expenses when payments become probable and can be reasonably estimated, plus an allowance for the cost of incurred but not reported expenses estimated using historical cost experience. The Company estimates short-term amount based on historical 12-month experience.

 

  10.

Revenue Recognition

Under the terms of its sales agreements with customers, the Company recognizes revenue when persuasive evidence of an arrangement exists, when the risks and rewards of ownership have transferred, when the price is fixed, and when collection is reasonably assured. For jobs in which the Company is responsible for the installation, the Company recognizes transfer of ownership occurs at delivery to the job site.    On some jobs the Company is required to bill the customer prior to shipment based on AIA documents, which will result in deferred revenue.    This revenue is recognized based on one of the two previous methods depending on the job.    The Company sells extended warranties on their products.    These revenues are recognized over the life of the warranty.

 

  11.

Advertising Expenses

Advertising production costs are expensed as incurred for print media. Total advertising expenses were $0.4 million and $0.3 million for periods ended May 27, 2017 and May 28, 2016, respectively.

 

  12.

Freight Charges

Shipping and handling fees billed to the customer are included in net product sales. Shipping and handling costs were $6.9 million and $5.7 million in periods ended May 27, 2017 and May 28, 2016, respectively, and are included in manufacturing costs.

 

  13.

Research and Development

The Company expenses all research and development costs as they are incurred. Research and development costs were insignificant for all periods presented.

 

  14.

New Accounting Standard

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases, which provides for a comprehensive change to lease accounting. The new standard requires that a lessee recognize a lease obligation liability and a right to use asset for virtually all leases of property,

 

8


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

 

NOTE A - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES – Continued

 

plant and equipment, subsequently amortized over the lease term. The new standard is effective for public companies for fiscal years beginning after December 15, 2018 and for nonpublic companies for fiscal years beginning after December 15, 2019, with a modified retrospective transition. The adoption of this standard will result in reflecting assets and liabilities for the value of our leased property and equipment on our balance sheet and while we are still evaluating the impact of the standards to our overall financial statements, it is not expected to have a significant impact on our results of operations.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. Under the new standard, an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods beginning after December 15, 2017 for public companies and for annual reporting periods beginning after December 15, 2018 for nonpublic companies. We are in the process of fully evaluating the impact this standard will have on our financial statements. In the coming months, we will undertake a process to quantify the impact of the new accounting guidance on each of the relevant fiscal years and will provide further analysis and discussion as we progress in the evaluation process.

NOTE B - INVENTORIES

The composition of inventories is as follows:

 

(Amounts in thousands)    May 27,    November 26,
     2017    2016

Production materials

     $     10,658        $     10,251  

Work in process

     4,483        4,558  

Finished goods

     8,024        7,281  
  

 

 

 

  

 

 

 

     $     23,165        $     22,090  
  

 

 

 

  

 

 

 

 

9


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

 

NOTE C – PROPERTY, PLANT, AND EQUIPMENT

The composition of property, plant, and equipment is as follows:

 

(Amounts in thousands)    May 27,   November 26,
     2017   2016

Land and land improvements

     $     3,626       $     3,626  

Buildings and leasehold improvements

     24,583       22,698  

Machinery and equipment

     32,111       29,422  

Capitalized software

     5,213       5,060  

Construction in progress

     5,352       4,901  
  

 

 

 

 

 

 

 

     70,885       65,707  

Less accumulated depreciation and amortization

     (29,680     (27,951
  

 

 

 

 

 

 

 

     $     41,205       $     37,756  
  

 

 

 

 

 

 

 

NOTE D – RELATED PARTY TRANSACTIONS

The Company has entered into agreements with Pella Corporation, which owned EFCO on May 27, 2017 and November 26, 2016, to purchase certain material used in some of its products.    The Company purchased approximately $0.3 million and $0.2 million of material under these agreements during periods ended May 27, 2017 and May 28, 2016, respectively, and had insignificant inventory on May 27, 2017 and May 28, 2016.

NOTE E – ACCRUED AND OTHER LIABILITIES

The composition of accrued and other liabilities is as follows:

 

(Amounts in thousands)    May 27,    November 26,
     2017    2016

Accrued commissions

     $     5,424        $     5,718  

Accrued payroll and related liabilities

     3,724        4,832  

Accrued insurance

     2,659        2,563  

Accrued freight

     1,048        201  

Customer deposits

     647        669  

Accrued property and use taxes

     639        871  

Profit sharing

     86        1,126  

Other

     1,543        874  
  

 

 

 

  

 

 

 

     $     15,770        $     16,854  
  

 

 

 

  

 

 

 

 

10


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

 

NOTE F - EMPLOYEE BONUS AND PROFIT SHARING PLANS

The Company sponsors a single 401(k) retirement plan covering substantially all employees who have satisfied plan eligibility requirements. The Company’s current provision under the Plan is generally based on qualifying operating income before profit distributions, donations, and other items as specified by the Board of Directors from time to time. The Company made contributions to the plan of $0.6 million and $0.4 million for periods ended May 27, 2017 and May 28, 2016, respectively.    The Company in a 2017 implemented a new 401(k) plan that would match 50% of the first 6% of employee contributions.

The Company maintains a plan that allows participants to defer compensation. The deferred compensation liability was $0.6 million and $0.5 million at May 27, 2017 and November 26, 2016, respectively. The Company has investments in corporate-owned life insurance policies (COLI) of $0.6 million with the intention of utilizing them as long-term funding sources for this plan. The COLI assets are recorded at their net cash surrender values and are included in other non-current assets in the consolidated balance sheet.

NOTE G - CONTINGENT LIABILITIES AND CONCENTRATIONS

Various lawsuits, claims, and proceedings have been or may be asserted against the Company. The Company accrues for legal claims and legal expenses when payments for such items become probable and can be reasonably estimated.

While the amounts claimed may be substantial, the ultimate liability cannot be determined because of the considerable uncertainties that exist. Therefore, it is possible that results of operations or liquidity in a future period could be affected by certain contingencies. However, based on facts currently available, management believes that the disposition of matters that are pending will not have a materially adverse effect on the financial position, results of operations, or cash flows of the Company.

The Company’s largest supplier constituted 29.9% and 34.5% of direct material purchases during period ended May 27, 2017 and year ended November 26, 2016, respectively.

At May 27, 2017 and November 26 2016, the Company had contractual commitments to purchase raw materials in future fiscal periods. Based on contractual provisions, these commitments were currently estimated to be approximately $12.9 million and $13.5 million, respectively, due within the next two fiscal years. The Company believes these commitments do not exceed normal purchasing level required.

 

11


EFCO Corporation

Notes to the Unaudited Condensed Financial Statements

 

 

NOTE H - LEASES

The Company leases facilities and equipment under operating leases expiring at various dates through fiscal 2025. These leases do not include any related party transactions. Rent expenses were $1.0 million and $1.0 million during periods ended May 27, 2017 and May 28, 2016, respectively. Following is a schedule of future minimum lease payments:

 

(Amounts in thousands)  

Year ending

  November

   Operating
leases
 

Remaining 2017

    $ 962   

2018

     1,418   

2019

     999   

2020

     749   

2021

     267   

      Thereafter

     914   
  

 

 

 
    $     5,309   
  

 

 

 

NOTE I – INCOME TAXES

Effective November 30, 1997, the Company converted to a Subchapter S Corporation. An S Corporation is generally not considered a taxable entity for federal, state, or local income tax purposes. Any taxable income or loss and certain other items are reported by the shareholders on their personal income tax returns in accordance with their equity interests. The Company continues to be responsible for the amount of state taxes assessed directly to the S Corporation. Accordingly, no provision has been made in the accompanying consolidated financial statements for federal, state, or local income taxes, except for those taxes applicable to federal built-in gains taxes, taxes applicable to states and localities which do not recognize S Corporation status, and state franchise taxes.

As of May 27, 2017 and November 26, 2016, the reserve for uncertain tax positions is not significant.

 

1 2

EX-99.2

Exhibit 99.2

Unaudited Pro Forma Condensed Combined Financial Information

Apogee Enterprises, Inc. (we, our or the Company) acquired all of the outstanding shares of capital stock of EFCO Corporation (EFCO) for approximately $192 million on June 12, 2017. EFCO manufactures architectural aluminum window, curtainwall, storefront and entrance systems for commercial construction projects, primarily in the U.S. The EFCO acquisition was funded by an expansion of the Company’s existing credit facility. On December 14, 2016, the Company, through a wholly-owned subsidiary, acquired substantially all the assets of Sotawall, Inc. (now operating under the name Sotawall Limited or Sotawall) for approximately $135 million, which was funded through a combination of available cash and borrowing under the Company’s existing credit facility. Sotawall designs and fabricates high-performance, unitized curtainwall systems for industrial, commercial and institutional buildings, primarily serving the Canadian and northeastern U.S. geographic regions.

The following unaudited pro forma condensed combined financial statements are based on the Company’s historical consolidated financial statements and EFCO’s and Sotawall’s respective historical financial statements, adjusted to give effect to the Company’s acquisitions of EFCO and Sotawall, Inc. and the related financing of each acquisition. The unaudited pro forma condensed combined statements of operations for the three months ended June 3, 2017 and the 12 months ended March 4, 2017 give effect to both acquisitions as if they had both occurred on February 28, 2016, the beginning of Apogee’s fiscal year 2017. The unaudited pro forma condensed combined balance sheet as of June 3, 2017 gives effect to the EFCO transaction as if it had occurred on June 3, 2017.

The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.

The unaudited pro forma condensed combined financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and quarterly report on Form 10-Q, and the historical financial information of EFCO included herein and of Sotawall, Inc. included in the Company’s Current Report on Form 8-K filed on February 28, 2017.


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 3, 2017

 

In thousands

   Apogee Enterprises, Inc.
Historical
  EFCO (Acquiree)
Historical (1)
  Pro Forma
Adjustments
  Notes    Pro Forma
Combined

Assets

           

Current assets

           

Cash and cash equivalents

    $ 22,972      $ -     $ -         $ 22,972  

Short-term available for sale securities

     425       -       -          425  

Restricted cash

     2,683       -       -          2,683  

Receivables, net of allowance for doubtful accounts

     180,483       47,407       -          227,890  

Inventories

     81,083       23,165       -          104,248  

Other current assets

     9,626       2,673       (108     b        12,191  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Total current assets

     297,272       73,245       (108        370,409  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Property, plant and equipment, net

     250,979       41,204       2,757       c        294,940  

Available for sale securities

     7,551       -       -          7,551  

Deferred tax assets

     1,099       -       3,110       f        4,209  

Goodwill

     95,211       24,722       29,707       j        149,640  

Intangible assets

     105,330       21,471       50,029       d        176,830  

Other non-current assets

     22,155       715       (56     b        22,814  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Total assets

    $ 779,597      $ 161,357      $             85,439         $ 1,026,393  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Liabilities and Shareholders’ Equity

           

Current liabilities

           

Accounts payable

    $ 63,666      $ 13,861      $ -         $ 77,527  

Accrued payroll and related benefits

     27,990       9,233       -          37,223  

Accrued self-insurance reserves

     5,901       2,136       1,486       e        9,523  

Other current liabilities

     32,979       11,042       (1,033     a, b        42,988  

Billings in excess of costs and earnings on uncompleted contracts

     33,931       1,824       -          35,755  

Accrued income taxes

     2,801       -       -          2,801  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Total current liabilities

     167,268       38,096       453          205,817  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Long-term debt

     71,400       -       184,826       a        256,226  

Unrecognized tax benefits

     4,309       -       -          4,309  

Long-term self-insurance reserves

     8,254       2,696       2,677       e        13,627  

Deferred tax liabilities

     3,622       -       3,110       f        6,732  

Other non-current liabilities

     42,915       10,824       4,114       a, b        57,853  

Commitments and contingent liabilities

           

Shareholders’ equity

           

Common stock

     9,596       47       (47     g        9,596  

Additional paid-in capital

     152,107       197,899       (197,899     g        152,107  

Retained earnings

     351,872       (88,205     88,205       g        351,872  

Common stock held in trust

     (886     -       -          (886

Deferred compensation obligations

     886       -       -          886  

Accumulated other comprehensive loss

     (31,746     -       -          (31,746
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Total shareholders’ equity

     481,829       109,741       (109,741        481,829  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

Total liabilities and shareholders’ equity

    $ 779,597      $ 161,357      $ 85,439         $             1,026,393  
  

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

See accompanying notes to the unaudited pro forma condensed combined financial information.

(1) EFCO balance sheet as of May 27, 2017.


UNAUDITED PRO FORMA CONDENSED COMBINED RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 3, 2017

 

In thousands, except per share information

   Apogee Enterprises, Inc.
Historical
  EFCO (Acquiree)
Historical (1)
   Pro Forma
Adjustments
  Notes    Pro Forma
Combined

Net sales

    $ 272,307      $ 71,744       $ -         $ 344,051  

Cost of sales

     202,013       55,144        88       c        257,245  
  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Gross profit

     70,294       16,600        (88        86,806  

Selling, general and administrative expenses

     46,188       13,556        (132     c, d, h        59,612  
  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Operating income

     24,106       3,044        44          27,194  

Other income (expense), net

     (98     -        (1,155     a        (1,253
  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Earnings before income taxes

     24,008       3,044        (1,111        25,941  

Income tax expense

     7,904       100        596       f        8,600  
  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Net earnings

    $ 16,104      $ 2,944       $ (1,707       $         17,341  
  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Earnings per share - basic

    $ 0.56       N/A            $ 0.60  

Earnings per share - diluted

    $ 0.56       N/A            $ 0.60  

Weighted-average basic shares outstaning

     28,851       N/A             28,851  

Weighted-average diluted shares outstanding

     28,861       N/A             28,861  

See accompanying notes to the unaudited pro forma condensed combined financial information.

(1) EFCO results of operations for the three months ended May 27, 2017.


UNAUDITED PRO FORMA CONDENSED COMBINED RESULTS OF OPERATIONS

YEAR ENDED MARCH 4, 2017

 

In thousands, except per share information

   Apogee Enterprises, Inc.
Historical
   Sotawall
Historical (1)
   (Sotawall)
Pro Forma
Adjustments
  EFCO (Acquiree)
Historical (2)
   (EFCO)
Pro Forma
Adjustments
  Notes    Pro Forma
Combined

Net sales

    $ 1,114,533       $ 84,147       $ -      $ 277,517       $ -         $ 1,476,197  

Cost of sales

     822,510        50,993        230       207,924        537       c        1,082,194  
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Gross profit

     292,023        33,154        (230     69,593        (537        394,003  

Selling, general and administrative expenses

     169,798        6,340        5,260       52,031        2,072       c, d, h, i        235,501  
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Operating income

     122,225        26,814        (5,490     17,562        (2,609        158,502  

Other income (expense), net

     580        37        (1,350     -        (4,621     a        (5,354
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Earnings before income taxes

     122,805        26,851        (6,840     17,562        (7,230        153,148  

Income tax expense

     37,015        6,713        (1,710     219        3,501       f        45,738  
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Net earnings

    $ 85,790       $ 20,138       $ (5,130    $ 17,343       $ (10,730       $         107,410  
  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

    

 

 

 

Earnings per share - basic

    $ 2.98        N/A          N/A            $ 3.73  

Earnings per share - diluted

    $ 2.97        N/A          N/A            $ 3.72  

Weighted-average basic shares outstanding

     28,781        N/A          N/A             28,781  

Weighted-average diluted shares outstanding

     28,893        N/A          N/A             28,893  

See accompanying notes to the unaudited pro forma condensed combined financial information.

(1) Sotawall results of operations for the period March 1, 2016 through December 13, 2016. Apogee acquired Sotawall on December 14, 2016.

(2) EFCO results of operations for the twelve months ended February 25, 2017.


Notes to Unaudited Pro Forma Condensed Combined Financial Information

Note 1: Basis of presentation

Our historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) expected to have a continuing impact on the combined results following the business combination.

The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has allocated the total purchase price to EFCO’s tangible and intangible assets acquired and liabilities assumed, based on their fair values at the date of the acquisition, and conformed the accounting policies of EFCO to its own accounting policies.

The Company’s fiscal year ends on the Saturday closest to the last day of February, or as otherwise determined by the Board of Directors, and the Company’s first fiscal year 2018 quarter-end was June 3, 2017. EFCO’s historical year-end is the Saturday closest to the last day of November. The balance sheet for EFCO included in the pro forma condensed combined balance sheet is as of May 27, 2017 and the results of operations for EFCO included in the pro forma condensed combined results of operations are for the three months ended May 27, 2017 and the 12 months ended February 25, 2017. Sotawall’s results of operations from the date of acquisition are included within Apogee Enterprises, Inc. historical results for the year ended March 4, 2017. Sotawall’s results of operations for the period from March 1, 2016 through December 13, 2016 are separately presented in the pro forma condensed combined results of operations for the year ended March 4, 2017.

The pro forma condensed combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisition occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

The Unaudited Pro Forma Condensed Combined Statements of Income do not reflect the costs of any integration activities or benefits that may result from realization of potential future synergies that may result from the acquisitions.

Note 2: Preliminary purchase price allocation

We have performed a preliminary allocation of the purchase price for EFCO to the acquired assets and assumed liabilities, as shown in the following table as of the acquisition date:

 

In thousands

   June 12, 2017

Net working capital

     $     33,682  

Property, plant and equipment, net

     43,961  

Goodwill

     62,788  

Other intangible assets

     71,500  

Less: Long-term liabilities, net

     19,605  
  

 

 

 

Total purchase price

     $     192,326  
  

 

 

 

This preliminary purchase price allocation was used to prepare pro forma adjustments in the unaudited pro forma condensed combined financial information. The preliminary purchase price may change based on the final working capital valuations and necessary calculations. Thus, the preliminary measures of fair value reflected are subject to changes and such changes could be significant to the unaudited pro forma condensed combined financial information. The final allocation may include (1) changes in allocations to intangible assets and (2) changes to income tax related accounts, as well as changes to other assets and liabilities, which may impact pro forma adjustments to the unaudited pro forma condensed combined financial information.

Note 3: Pro forma adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:


  (a)

Reflects the draw on the line of credit to fund the acquisition of EFCO, as well as the short-term and long-term liability for the $2.5 million to be paid to the seller annually in each of the next three years. Also reflects the interest expense at a rate of approximately 2.5 percent on the outstanding balance due to the acquisitions of EFCO in June 2017 and Sotawall in December 2016. A change in interest rate of 0.125 percent would impact interest by approximately $0.1 million for the three month period and approximately $0.3 million for the twelve month period.

 

  (b)

Adjustments to exclude assets and liabilities not included as part of the EFCO acquisition.

 

  (c)

Represents the estimated adjustment to increase the basis in the acquired EFCO property, plant and equipment to estimated fair value and adjust depreciation due to changes in estimated carrying value and remaining useful lives. The estimated useful lives of EFCO assets acquired range from three to 25 years. For the year ended March 4, 2017, adjustment also includes additional estimated depreciation due to the estimated carrying value and remaining useful lives of assets acquired in the Sotawall transaction.

 

  (d)

As part of the preliminary valuation analysis of EFCO, intangible assets, including backlog, customer relationships and trademarks were identified. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. The following table summarizes the preliminary estimated fair values of EFCO’s identifiable intangible assets and their estimated useful lives and estimated pro forma amortization expense using a straight-line method:

 

               Amortization Expense
In thousand    Estimated fair value    Estimated useful life
In Years
   Three months ended
June 3, 2017
   Year ended
March 4, 2017

Acquired backlog

     $ 4,300        1.5        $ 717        $ 2,867  

Customer relationships

     34,800        16.0        544        2,175  

Trademarks

     32,400        Indefinite        -        -  
  

 

 

 

     

 

 

 

  

 

 

 

Total

     $ 71,500           1,260        5,042  
  

 

 

 

        

Less: Backlog which does not have a continuing impact

           717        2,867  
        

 

 

 

  

 

 

 

Pro forma adjustment to amortization expense

           $ 544        $ 2,175  
        

 

 

 

  

 

 

 

 

      

These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a significant impact on the accompanying unaudited pro forma condensed combined financial statements. These amounts also may not be useful in predicting the future financial condition and results of operations of the combined company.

 

      

For the year ended March 4, 2017, adjustment also includes additional estimated amortization on intangible assets acquired in the Sotawall transaction.

 

  (e)

Adjusts reserves for self-insurance to estimated fair value based on actuarial analysis of claims.

 

  (f)

Adjusts the deferred tax assets and liabilities and taxes payable resulting from the EFCO acquisition and reflects the income tax effect of pro forma adjustments based on the estimated effective tax rate of EFCO of 36 percent. The twelve month period also includes the income tax effect of pro forma adjustments based on the effective tax rate of Sotawall of 25 percent. The tax rate does not take into account any historical or possible future tax events that may impact the combined company.

 

  (g)

Eliminates the historical equity of EFCO.

 

  (h)

Removes transaction costs related to the acquisitions of approximately $0.7 million for the three-months ended June 3, 2017 and $0.8 million for the twelve-months ended March 4, 2017, respectively, since they do not have a continuing impact.

 

  (i)

Removes foreign currency exchange gain/loss on derivative contracts at Sotawall, as such contracts were cancelled prior to acquisition.

 

  (j)

Reflects adjustment to record preliminary estimate of goodwill resulting from the EFCO acquisition.


Note 4: Foreign currency and US GAAP conversion adjustments

The historical financial information of Sotawall was prepared in accordance with Canadian Accounting Standards for Private Enterprises (Canadian ASPE). The historical financial information of Sotawall for the period ended December 13, 2016 was translated from CAD to U.S. dollars (USD) using an historical average rate of $0.764 per Canadian dollar. Significant adjustments to convert the Sotawall historical financial information from Canadian ASPE to accounting principles generally accepted in the United States (U.S. GAAP) were not required.